MUNICIPAL DEVELOPMENT PROJECT
INCENTIVE COMPENSATION APPENDIX PROVISIONS
Clause 7.8 of the May 2006 World Bank Implementation Completion Report (ICR) for the Municipal Development Project details how the “Operator Performance also can be measured by the $1.41 million Incentive Payment received, 94% of the $1.50 million possible”.
The Incentive Compensation Provisions section of the Operator Contract is the basis for payment of Operator Incentive Payment. It is interesting how the Bank does not make reference to the changes made to the Incentive Compensation Provisions after the first year of the project, which are detailed below and which clearly show how that “Excellent” rating was achieved by putting in a “POOR” performance.
The Authorized Representative of the International Operator was making changes to the Operator Contract soon after the start of the project in June 2000, in collaboration with the new bosses he found when he became General Director of the company to which he was contracted under the Operator Contract.
ARTICLE 1 - GENERAL
1.1. Documents Comprising the Incentive Compensation Appendix
(1) The Incentive Compensation Appendix consists of:
a) the Incentive Compensation Provisions
b) the Incentive Compensation Calculation Procedure Notes
(Attachment #1), and
c) the Incentive Compensation Charts (Attachment #2 Charts 1 to 4)
ARTICLE 2 - THE INCENTIVE COMPENSATION
2.1. Incentive Compensation Limits
(1) The Incentive Compensation paid to the Operator shall not exceed the equivalent of $1,500,000 U.S. over the term of the Contract
(2) The Incentive Compensation paid to the Operator in any Contract year shall not exceed, a) the equivalent of $345,000 U.S.; or b) the total revenues collected by the Operator from Customers in the Contract Year for which the Incentive Compensation is being calculated (the “Year of Calculation”) minus the total revenues from the same time period in the year immediately prior to the Year of Calculation, whichever is the less (the “Maximum Annual Incentive Compensation)
Clause (2) was modified and replaced by the following:
MODIFIED CLAUSE (2)
(2) The Incentive Compensation paid to the Operator in any Contract year shall not exceed the equivalent of $345,000, plus any Incentive Compensation carried over from the prior year (the “Maximum Annual Incentive Compensation)
(3) The actual amount paid to the Operator as Incentive Compensation shall be determined by the extent to which the Operator achieves the performance criterion set out in the Incentive Compensation Charts and by the application of the calculations set out in the Incentive Calculation Procedure Notes for the applicable year.
Clause (3) remains the same
(4) If the Operator fails to meet the Excellent= rating set out in the Incentive Compensation Chart, in any Contract Year, the Operator will be obliged to make up the shortfall in the subsequent Contract Year, as well as meet the performance targets for that Contract Year.
Clause (4) was modified and replaced by the following:
MODIFIED CLAUSE (4)
(4) If the Operator fails to meet the “POOR” rating in the 1st and 2nd Contract Years and “GOOD” in the 3rd Contract Year for any of the criteria which are not included in the subsequent Contract Years, the Operator will be obliged to make up the shortfall for that criteria in the subsequent Contract Year.
(5) Except as the YWSC may, in its sole discretion, otherwise determine based on exceptional circumstances, if the Operator fails to attain the maximum Annual Incentive Compensation in any Contract Year, the shortfall will not be available to the Operator in the subsequent Contract Years and the equivalent of $375,000 U.S. per Contract Year maximum will not be increased.
Clause (5) was modified and replaced by the following:
MODIFIED CLAUSE (5)
(5) If the Operator fails to attain the maximum Annual Incentive Compensation in any Contract Year, the shortfall will be available to the Operator in the subsequent Contract Year and the equivalent of $375,000 U.S. per Contract Year maximum will be increased accordingly;
(6) For the purpose of calculating the equivalency of $1,500,000 U.S. and $375,000 U.S. pursuant to Section 2.1. (1) and 2.1. (2) of this Incentive Compensation Appendix, the equivalency shall be calculated as of the date of payment of the Incentive Compensation.
Clause (6) remains the same
2.2. Incentive Compensation Contingency
The Operating Investment Fund will include a contingency amount equivalent to $375,000 per Contract Year to guarantee payment of the Incentive Compensation earned by the Operator in any Contract Year as calculated pursuant to this Incentive Compensation Appendix.
Clause 2.2.remains the same
2.3. Minimum “POOR” Performance on Any Criteria
If, in any Contract Year, the Operator receives a rating of less than “POOR” on any one of the criteria measured, the Operator shall not be eligible to receive Incentive Compensation for that Contract Year.
Clause 2.3. was modified and replaced by the following:
MODIFIED CLAUSE (2.3.)
If, in any Contract Year, the Operator receives a rating of less than “POOR” on any one of the criteria measured, the score for such criterion will be considered as “ZERO”.
Signed: Gagik Martirossian - Head of the Armenian State water Committee
Varazdat Avoyan - Director Project Management Unit (PMU)
A. Mangano - A. Utilities
Richard Walkling - A. Utilities